#1
Which of the following is considered a safe investment option?
Bonds
ExplanationBonds are generally considered safe due to fixed interest payments and lower risk of capital loss.
#2
What is the purpose of an Emergency Fund in personal finance?
To cover unexpected expenses
ExplanationAn Emergency Fund is meant to provide financial security by covering unexpected expenses or emergencies.
#3
What is the primary purpose of a 401(k) retirement account?
To save for retirement
ExplanationA 401(k) is designed to help individuals save for retirement by offering tax advantages and employer contributions.
#4
What is the primary purpose of an Individual Retirement Account (IRA)?
To save for retirement
ExplanationAn IRA is a retirement savings account that provides tax advantages for individuals saving for retirement.
#5
What is the primary benefit of investing in index funds?
Diversification and low expense ratios
ExplanationIndex funds provide broad market exposure, diversification, and generally have lower expense ratios.
#6
What is the concept of 'compound interest' in personal finance?
Interest calculated on the initial investment and any interest already earned
ExplanationCompound interest is the interest earned on both the principal amount and the interest accumulated over time.
#7
What does the term 'Diversification' mean in investment?
Investing in multiple asset classes to spread risk
ExplanationDiversification involves spreading investments across different types of assets to reduce overall risk.
#8
What is the concept of 'asset allocation' in investment?
The process of distributing investments among different asset classes
ExplanationAsset allocation involves spreading investments among different types of assets to achieve a balanced portfolio.
#9
What is the term used to describe the ratio of debt to equity in an investment?
Leverage ratio
ExplanationThe leverage ratio measures the proportion of debt used to finance an investment relative to equity.
#10
What is the purpose of dollar-cost averaging in investing?
To buy more shares when prices are low and fewer shares when prices are high
ExplanationDollar-cost averaging involves consistent investment, buying more shares when prices are low and fewer when prices are high, reducing the impact of market volatility.
#11
Which of the following investment options typically offers the highest potential returns but also carries the highest risk?
Stocks
ExplanationStocks have high potential returns but come with higher risk due to market volatility.
#12
Which of the following investment options is typically considered the least liquid?
Real estate
ExplanationReal estate is often less liquid as it takes time to sell and convert into cash without significant value loss.